Microsoft and Intel Are the Biggest Losers in HP-Palm Deal

HP’s proposed $1.2 billion acquisition of Palm, is so far being lauded as a win-win: HP, which had only ever dipped a toe in the smartphone space with a few “me-too” devices, will now be able to jump into the deep end of the handset pool. And based on comments from HP executives, Palm will continue to mature the webOS platform it built from the ground up for the Pre and Pixi handsets. But this deal is about more than just smartphones — it’s about multiple devices on a “mobile computing platform”, according to Tom Bradley, EVP of HP’s Personal Systems Group. Such a statement spells trouble for the mobile ambitions of two of computing’s largest incumbents: Microsoft and Intel.

Both are on the outside looking in when it comes to mobile computing. Microsoft had and then lost its smartphone lead when it failed to adapt its Windows Mobile platform to meet the needs of the mobile Internet, allowing younger, more nimble upstarts to create brand-new mobile platforms from scratch and snap up market share. Intel, meanwhile, realizing that its power-hungry processors weren’t equipped to run handheld devices all day long, created the low-voltage Atom CPU in 2008. It’s been tweaking the Atom for use in phones ever since, but few smartphone manufacturers have abandoned power-efficient ARM chips to use Intel’s Atom. Ironically, Intel once powered early Windows Mobile devices with its Xscale ARM chips, but sold that division in 2006 to Marvell for $600 million. So what are Microsoft and Intel doing about slowly getting brushed aside in the mobile space and how will the HP-Palm deal hamper those efforts?

Microsoft is taking a fresh new approach with its mobile operating system for smartphones. Early looks at Windows Phone 7, due out on devices this holiday season, show a clean, touch-friendly user interface that focuses on the mobile activities people engage in most on a phone — social networking updates, email, media consumption and creation, and web browsing. We’ll never know if HP had planned any new smartphones built on Windows Phone 7 — if it did, you can rest assured those plans are already in the trash can.

That’s just one minor way Microsoft is potentially losing out. The bigger elephant in the room is that HP Slate shown off by Steve Ballmer at the Consumer Electronics Show in January. This marks the fourth year that Microsoft has partnered with hardware makers to create a consumer market for a slate device running Windows. The past three years didn’t see many of the UMPCs, or ultra-mobile personal computers, be sold, however, and the few that were bought were created by brands that most consumers here wouldn’t recognize — Samsung being a notable exception. But with the HP name, a Windows-powered slate has instant brand recognition that might get more people to consider such a device. Unfortunately, mobile devices don’t work well with desktop operating systems — a lesson that wasn’t lost on Apple, which uses the iPhone OS on its iPad tablet.

The burning question now is: Will HP even go forward with the Slate? I suspect it will, only because it’s already invested time, effort and other resources in the device. And trying to quickly re-jigger webOS in the existing slate design would be a challenge due to chip architecture differences — the Slate is powered by an Intel Atom chip — and a screen resolution for which webOS isn’t equipped. But now that HP has its own mobile platform in webOS it can create a different slate tablet without having to pay anyone else licensing fees. Bradley made this point clear in yesterday’s conference call, saying, “HP plans to release smartphones, tablets and maybe even netbooks using webOS.” And therein lies the rub for Intel.

WebOS isn’t made to run on Intel’s chips that use the x86 architecture, so unless HP decides to port the operating system to run on x86 chips — and I see no good reason why it would — webOS devices will continue to run on ARM chips. That slams the door on a major mobile hardware partner for Intel. Other popular mobile platforms all run on non-Intel chips — Apple, Google, Research in Motion and Symbian all work with the ARM architecture, not with Intel’s. And this isn’t news to Intel; in order to carve out it’s own niche in the mobile space, Intel has partnered with Nokia on the MeeGo operating system for handhelds and netbooks.

With the mobile space already crowded, there may not be room for a MeeGo to save Intel and a lackluster HP Slate effort isn’t what Intel needs right now. And HP certainly won’t be helping Microsoft with its big Windows Phone 7 launch. The way I see it, HP’s gain from the Palm deal is mainly Microsoft’s and Intel’s loss.